Following German Chancellor Scholz first visit to China in November 2022, he visited China again from April 14 to 16. He had a visit to Chongqing, Shanghai, and Beijing over three days, with the companionship of three German ministers as well as senior executives from BMW, Mercedes-Benz, and other German companies.
Talking about the significance of the visit, Ma Ming Bo (Maximilian Butek), Executive Director & Board Member of the German Chamber of Commerce in China–East China accepted SFC's reporter interview and indicated that Scholz business delegation once again visited China, signaling the strong will of the German government to strengthen cooperation with China.
In Ma Mingbo's view, through this visit, Scholz is able to have frank communication with the Chinese side, which will help the two sides enhance mutual trust. Ma Mingbo expressed the hope that China can further promote opening up and allow German companies to share the business opportunities of China's high-quality economic development.
SFC Markets and Finance: Let's begin with Chancellor Scholz's upcoming visit to China. We've heard that he will bring a large delegation, including top German executives and several ministers. What are your expectations for his visit?
Maximilian Butek: Firstly, I think it's a very important signal that he comes to China for 3 days, which is quite extensive, especially considering the circumstances of his previous visit in 2022, which was still under difficult circumstances during the pandemic. Now, he can travel throughout the whole country, starting in Chongqing, then proceeding to Shanghai and Beijing. This presents a valuable opportunity to enhance our understanding of the relations we have with China.
SFC Markets and Finance: Just weeks ago, some German companies were in Beijing for the CDF. Now, some of them have decided to come back to China with the German chancellor again. What made them so interested in China?
Maximilian Butek: For many German companies, China is really an important place to be. We have a lot of investments going on here. We have a lot of clients who like to work here. These CEOs coming frequently to China is a sign indicating their strong commitment to the market and they are all very eager to explore more opportunities. Joining a trip with Chancellor Scholz presents a valuable chance to identify more potential cooperation between China and Germany, and their companies of course.
SFC Markets and Finance: Last year, the German federal government announced a comprehensive China strategy. It was the first time they did so, and some Chinese companies are concerned. The strategy seems to emphasize the idea of de-risking. The Chinese companies worry that will this lead to decoupling and disconnection between two countries. What is your interpretation of this strategy?
Maximilian Butek: If we look at the actual data, German companies still heavily invested in China. Our studies show that fifty percent of these companies are planning to invest more. They are also planning to invest more to enhance their competitiveness. This indicates a strong commitment to the market. De-risking is something totally fine, and I believe both the German and Chinese governments, as well as companies, are doing the same thing. It's the job of every multinational company to see where are their risks, and where they have to work on their resilience, whether it's in supply chains or markets.
German companies are no exception. The government's focus is on seeing where are actually our dependencies and where do we have to do our own homework to improve our competitiveness at home. Those deserve good discussions. However, it's also important to note that the German government has stated clearly that there is no interest in decoupling. From our perspective, the relationship with China is expected to continue and to grow. But I think we can discuss certain issues we have; it's a larger topic.
SFC Markets and Finance: In the past couple of years, there were a lot of things going on, like geopolitical tensions, the two conflicts, and the pandemic. Have you noticed any new trends in Sino-German business cooperation, especially in trade and investment?
Maximilian Butek: I believe there have been many changes. Firstly, the pandemic and the subsequent border closures and factory shutdowns highlighted how sensitive our global supply chains is. This served as a wake-up call for all companies, both Chinese and German, as well as multinational corporations, to assess weaknesses in our supply chains and ensure the supply of our customers. This involves, on the one hand, how can we guarantee the supply to Chinese customers and how can we increase resilience within China, but also outside China.
About the geopolitical issues, it appears that there is a lack of trust among all parties involved, and trust can only be created if people meet and if people talk and discuss. Therefore, it's a positive sign that our chancellor is traveling to China to work on building trust. Similarly, the Dutch premier was here a couple of days ago. I think all these are strong signs that everyone wants to build on the trust, which might have lacked a little in the past.
So, there is room to boost trade between the two countries, as soon as we can overcome the obstacles. I think the Chinese consumers and companies appreciate German products, and we also appreciate the opportunity to develop and design new products in China. It's truly a win-win situation. If we can build more trust between our two countries, I believe it would further boost trade volume.
SFC Markets and Finance: So let's also discuss trade. The total direct investment of Germans in China reached a new record last year, with a 4.3% increase over the previous year. What do you think of this?
Maximilian Butek: There are various reasons for this. Firstly, our surveys indicate confidence in the Chinese market. Our companies expect that the market will grow. Our companies are investing further in research and development to serve our clients here, in a better and faster way, to become more cost efficient, and to become more competitive.
On the other hand, this is also a sign that one tries even harder to mitigate risk and make the Chinese market more resilient by taking more supply chains into China. While this may seem advantageous for China in the short term to attract more investment, it could also signal a decrease in trust in global trade.
SFC Markets and Finance: China's economy is transitioning from a phase of high-speed growth to one focused on high quality. Some argue whether China's development is losing steam. What is your take on that, and given the current situation, what are the new opportunities for cooperation between China and Germany?
Maximilian Butek: I believe we all have to come to the point that we accept that the Chinese economy has matured significantly. We cannot expect the same high growth rates as before, especially considering the progress made over the past twenty years. The base was way lower. Additionally, the Chinese government wants to move away from the property sector towards high-quality growth industries. It seems to be the right direction. If you look at the German industry profile, we can support China's economy well with our technologies. Specifically, when it comes to directions like renewable energy, green energy, advanced manufacturing, carbon reduction, energy efficiency, and even automotive sectors. I believe our cooperation can be quite fruitful as we are well-aligned in these industries.
SFC Markets and Finance: To be more specific, China is pushing really hard the development of the digital economy and green transition. How do German companies respond to these changes?
Maximilian Butek: There are numerous opportunities for us, given our focus on these topics over the last two decades. Especially in the green economy, as energy has always been relatively expensive in Germany, and we aim to become more independent in this area. Environmental protection is a significant concern for us, and we have spent the last twenty years developing excellent technologies in this field, which we are more than happy to bring to China.
SFC Markets and Finance: Many German companies have already established themselves in China's Greater Bay Area. I don't know if you've been there, but have you discussed with your member companies regarding the opportunities and challenges over there, and what is the view of the region's prospects?
Maximilian Butek: The Greater Bay Area is an extremely prosperous region. If you look at the electronics sector, you have the world's manufacturing hub. There are also very innovative companies, such as BYD, Tencent, and Huawei, in this region. The region is very important for China. It's traditionally an export-driven region. Approximately 200 to 250 German companies are located in this region. At first, German investments were concentrated in the Yangtze River Delta. You don't need to have too many factories, right? So you focus rather on those you are having before you open a lot of more factories that's why we are maybe in production, not that much represented in the south.
SFC Markets and Finance: Could you provide an overview of German companies in China, such as the number of companies, the scale of their investments, and the industries they are primarily involved in?
Maximilian Butek: We have around 5000 German companies in China. I think it reflects the industries we represent in Germany. These industries include heavy machinery, automotive, chemicals, plastics, electronics, and consumer goods. We expect that we have approximately 1.1 million employees in our companies but a lot more indirect employees in the supply chains of it.
SFC Markets and Finance: How do they view China's economic potential in the midterm, and what should be done to attract more German investments?
Maximilian Butek: 90% of our companies state they have no intention of leaving China, which is quite promising and demonstrates their commitment. Additionally, 50% express their desire to invest further in China. Of those, 80% emphasize investing in research and development, which is high-quality investment that will bring a lot of benefits for the Chinese economy. We appreciate the opportunity to deepen our engagement here. Companies are relatively optimistic about the next one to three years, anticipating a growing market in China despite all the challenges. However, According to our survey, one significant challenge is the local competition becomes very strong. And the number of companies who say it's unfair competition is also quite high. I believe the Chinese government can do more to ensure a level playing field so that foreign investors have equal opportunities compared to Chinese companies.
SFC Markets and Finance: Could you illustrate one of the industries where you see the most intense competition?
Maximilian Butek: I mean, automotive, of course, is facing intense competition. Machinery and renewable energy industries are also highly competitive. I don't think there's any industry in China that isn't fiercely competitive. Part of the reason for this is that China's innovation capability is getting better.
SFC Markets and Finance: Let's look at it the other way around: Chinese investments in Germany. Could you provide a brief introduction of the trends you've observed in Chinese investments in Germany in recent years?
Maximilian Butek: The overall theme mirrors what foreign companies experience in China: We need to localize more. We need to be closer to our customers, and develop more resilient supply chains. This holds true for Chinese companies as well. They also aim to be closer to European customers and mitigate risks in the supply chain, among other objectives.
Additionally, they are tapping into R&D resources and collaborating extensively with German talent. Many companies have established design offices in Germany and view the entire European Union as a promising investment opportunity to expand their production capabilities.
SFC Markets and Finance: Given the economic challenges Germany is currently facing, what suggestions do you have for Chinese companies interested in investing in Germany? What industries should they consider, and what opportunities await them?
Maximilian Butek: I believe it's essential to view Germany not only as a strong market with robust manufacturing capabilities but also as a gateway to the entire European Union, which boasts a population of 250 million. This vast market provides significant opportunities, and being within the European Union streamlines regulatory processes. Germany is renowned for its high levels of innovation, and collaborating with universities is relatively straightforward. Moreover, Chinese investment in Germany is often treated as German investment, facilitating integration into the local business landscape. We don't differentiate between foreign and German investment. Once you establish a company in Germany, you are considered a German company, which is advantageous. I don't see any disadvantages in this regard.
